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Tuesday, May 6, 2014

Gary Becker and the Time Constraint

Like every student of economics, I frequently find myself confronting the objection that economics is built on an unrealistic and unpalatable assumption that people should be viewed as selfish and rational. While some economic models do take such an approach as a simplified starting-point for analysis, that assumption is not the fundamental starting point of the economic approach. Instead, the starting point for economic analysis is that we live in a world of scarcity--most fundamentally a limit on the time available to us--and so we have no alternative but to make choices. The famous economist Gary Becker, whose time ran out when he died earlier this week, made this point at the start of his 1992 Nobel prize lecture:

"My research uses the economic approach to analyze social issues that range beyond those usually considered by economists. . . . Unlike Marxian analysis, the economic approach I refer to does not assume that individuals are motivated solely by selfishness or gain. It is a method of analysis, not an assumption about particular motivations. Along with others, I have tried to pry economists away from narrow assumptions about self interest. Behavior is driven by a much richer set of values and preferences.

The analysis assumes that individuals maximize welfare as they conceive it, whether they be selfish, altruistic, loyal, spiteful, or masochistic. Their behavior is forward-looking, and it is also consistent over time. In particular, they try as best they can to anticipate the uncertain consequences of their actions. Forward-looking behavior, however, may still be rooted in the past, for the past can exert a long shadow on attitudes and values. Actions are constrained by income, time, imperfect memory and calculating capacities, and other limited resources, and also by the available opportunities in the economy and elsewhere. These opportunities are largely determined by the private and collective actions of other individuals and organizations.

Different constraints are decisive for different situations, but the most fundamental constraint is limited time. Economic and medical progress have greatly increased length of life, but not the physical flow of time itself, which always restricts everyone to twenty-four hours per day. So while goods and services have expended enormously in rich countries, the total time available to consume has not. Thus, wants remain unsatisfied in rich countries as well as in poor ones. For while the growing abundance of goods may reduce the value of additional goods, time becomes more valuable as goods become more abundant. Utility maximization is of no relevance in a Utopia where everyone’s needs
are fully satisfied, but the constant flow of time makes such a Utopia impossible."

Becker's Nobel lecture goes on to review his work in some key areas: discrimination, crime and punishment, formation of human capital, and structure of families. But here, I'd point out a different implication of Becker's view.

There is a long-standing prediction, traceable at least as far back as John Stuart Mill's Principles of Political Economy in 1848 (for example, here), which looks forward to the end of scarcity. The argument is that someday--perhaps not too far into the future--there will be "enough" economic growth. When that time arrives, people will able to work less or not at all, while enjoying a sufficiency of the material goods that what want along with the time to pursue higher goals. When this time arrives, Mill wrote: "There would be as much scope as ever for all kinds of mental culture, and moral and social progress; as much room for improving the Art of Living, and much more likelihood of its being improved, when minds ceased to be engrossed by the art of getting on. Even the industrial arts might be as earnestly and as successfully cultivated, with this sole difference, that instead of serving no purpose but the increase of wealth, industrial improvements would produce their legitimate effect, that of abridging labour."

When Becker points out that that the starting point for economic analysis is scarcity, that the most fundamental embodiment of scarcity is the limits of time, and that time becomes more valuable as per capita incomes rise, his argument implies that economic growth will never render the economic analysis of tradeoffs obsolete.